937 F.

2d 965
60 USLW 2044

Norman W. SWANSON, Henry F. Murray, Carl L. Whitney,

William
Z. Nicholson, III, Charles L. Dancey, Melvin F. Eyerman, Ira
N. Schwarz, John L. Powell, Jr., Galena Elworth, Donald V.
Wallace, William E. Denton, Robert A. Nisbet, Walter J.
Bartnikowski, Ralph P. Hunt, Marion B. Zollicoffer, William
H. Talbert, Billy Clark, Wallace M. Davis, Grady L. Strange,
Hamilton M. Howe, Mary L. Pritchard, Robert B. Campbell,
Individually and for the benefit and on behalf of all other
similarly situated, Charles L. Berry, Robert D. Lennon,
Zebulon V. Moseley, III, Gary W. O'Neal, Milton S. Price,
Martin L. Speicher, Paul H. Turney, Plaintiffs-Appellees,
v.
Helen A. POWERS, Secretary of the North Carolina
Department
of Revenue, Defendant-Appellant,
and
North Carolina Department of Revenue; Harlon Boyles,
Treasurer of the State of North Carolina, Defendants.
No. 90-1110.

United States Court of Appeals,

Fourth Circuit.
Argued March 4, 1991.
Decided June 25, 1991.

John Robbins Wester, David C. Wright, III, Robinson, Bradshaw &

Hinson, P.A., Charlotte, N.C., argued (Lacy H. Thornburg, Atty. Gen. of
North Carolina, Marilyn R. Mudge, Asst. Atty. Gen., Raleigh, N.C., on
brief), for defendant-appellant.
Wallace R. Young, Jr., Womble, Carlyle, Sandridge & Rice, Charles H.

Taylor, argued (G. Eugene Boyce, Donald L. Smith, Jasper L. Cummings,

Jr., Mark E. Richardson, III, Womble, Carlyle, Sandridge & Rice,
Winston-Salem, N.C., on brief), for plaintiffs-appellees.
Before SPROUSE and WILKINSON, Circuit Judges, and MacKENZIE,
Senior District Judge for the Eastern District of Virginia, sitting by
designation.
WILKINSON, Circuit Judge:

Helen Powers, former Secretary of Revenue for the state of North Carolina,
faces potential liability of $140 million for her actions in enforcing the state
revenue code. According to complainant taxpayers, Secretary Powers collected
taxes from them during a four-year period when she should have known that to
do so violated both the constitutional doctrine of intergovernmental tax
immunity and the Public Salary Tax Act of 1939. Because the law that
plaintiffs claim Powers violated was not clearly established at the time,
however, we hold that she is entitled to immunity from suit and reverse the
judgment of the district court.

I.
2

Under North Carolina law as of early 1989, former state and local government
employees received a state income tax exemption for the full amount of their
retirement benefits. Former federal civil service and military personnel could
exempt up to $4000 of their retirement benefits. Private sector retirees in North
Carolina received no exemptions, however.

On March 28, 1989, the United States Supreme Court reversed a decision of the
Michigan Court of Appeals and declared unconstitutional a Michigan taxation
scheme that was similar to North Carolina's in that it granted state income tax
exemptions to retired state employees, but not to either federal or private
retirees. See Davis v. Michigan Dep't of the Treasury, 489 U.S. 803, 109 S.Ct.
1500, 103 L.Ed.2d 891 (1989). The Court held that such a tax system
discriminated against the federal government and thus violated the
constitutional doctrine of intergovernmental tax immunity as well as the Public
Salary Tax Act of 1939, codified, as amended, at 4 U.S.C. Sec. 111. That
decision affected approximately twenty states which had enacted exemptions
similar to those promulgated by Michigan.

Two weeks after the Davis decision was announced, plaintiffs brought a class

action under 42 U.S.C. Sec. 1983 on behalf of all federal retirees residing in
North Carolina (the "Class A" plaintiffs), seeking a refund of unconstitutional
taxes paid for the tax years 1985 through 1988. The suit named as defendants
the North Carolina Department of Revenue as well as various state officers in
both their official and individual capacities. Defendant Helen Powers was
Secretary of the North Carolina Department of Revenue during the relevant
period.1 Plaintiffs claimed that to give retired state employees a greater
exemption than that granted to retired federal employees comprised
unconstitutional discrimination under the doctrines underlying Davis. A second
group of plaintiffs consisting of active-duty military personnel and reservists
(the "Class B" plaintiffs) was later allowed to join the suit. They challenged a
$1500 state income tax exemption granted to members of the North Carolina
National Guard. While both classes of plaintiffs continue to pursue their claims
against the state, they alternatively seek to hold Secretary Powers personally
liable for the $140 million they claim to have overpaid.
5

Powers moved to dismiss the suit against her on the grounds of qualified
immunity. Although she conceded that under Davis the unequal exemptions for
federal and state retirees were unconstitutional,2 she claimed that her conduct in
enforcing the North Carolina revenue statutes from 1985-88 did not violate
"clearly established statutory or constitutional rights of which a reasonable
person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct.
2727, 2738, 73 L.Ed.2d 396 (1982). The district court denied the motion, ruling
that the Supreme Court's decision in Davis was "inevitable" and that Powers
should have known that she was collecting unconstitutional taxes. In so
holding, the court pointed to the "long-standing principles" underlying the
decision in Davis, specifically, the doctrine of intergovernmental tax immunity
and the Public Salary Tax Act of 1939.

Powers appeals from the court's denial of her motion for dismissal.

II.
7

Government officials who are performing their official duties are generally
shielded from liability for civil damages. Harlow, 457 U.S. at 818, 102 S.Ct. at
2738. Immunity from personal liability "reflects the concern that civil damages
awards against public officers for every judicially determined violation of
constitutional rights would prove too expensive to the public, discourage public
service employment and impair governmental decisionmaking." Tarantino v.
Baker, 825 F.2d 772, 774 (4th Cir.1987). We believe that to hold Secretary
Powers liable because she failed to accurately predict the outcome of the Davis
decision would work a miscarriage of justice leading to exactly such

unacceptable consequences.
8

In this section we examine the law as it existed prior to the Supreme Court's
decision in Davis and conclude that a reasonable state official would not have
known that North Carolina's tax system was unconstitutional because at that
time the law was not clearly established. Section III discusses the Secretary's
potential liability to the Class A plaintiffs for her actions following Davis, and
the final section examines aspects of the Class B plaintiffs' claims.

A.
9

Only violations of those federal rights "clearly recognized in existing case law"
will support an award in damages under 42 U.S.C. Sec. 1983. Danenberger v.
Johnson, 821 F.2d 361, 365 (7th Cir.1987). Public officials must be able to
discharge their public duties free of an omnipresent fear of Sec. 1983 liability.
Only in that way can we be sure that government can continue to function
efficiently while liability will fall properly upon only "the plainly incompetent
or those who knowingly violate the law." Malley v. Briggs, 475 U.S. 335, 341,
106 S.Ct. 1092, 1096, 89 L.Ed.2d 271 (1986).

10

This tolerance for a range of reasonable public actions is particularly important

for those who must interpret often imprecise or incomplete legal precedent.
"For the law, as lawyers best know, is full of perplexities." Pennekamp v.
Florida, 328 U.S. 331, 371, 66 S.Ct. 1029, 1049, 90 L.Ed. 1295 (1946)
(Rutledge, J., concurring). The dockets of courts are testaments in a sense to the
many questions that remain reasonably debatable. Holmes touched on this
uncertain process when he defined "the law" as "[t]he prophecies of what the
courts will do in fact, and nothing more pretentious." O.W. Holmes, The Path
of the Law, in The Common Law & Other Writings 173 (1982).

11

In interpreting qualified immunity then, we must appreciate the fact that the
direction of the law may be difficult to ascertain. Thus, although public
officials may be "charged with knowledge of constitutional developments,
[they] are not required to predict the future course of constitutional law." Lum
v. Jensen, 876 F.2d 1385, 1389 (9th Cir.1989). "A reasonable government
official cannot necessarily be expected to recognize the significance of a few
scattered cases from disparate areas of the law ..." Lojuk v. Johnson, 770 F.2d
619, 628 (7th Cir.1985). The requirement, after all, is that the law be clearly
established, not simply possibly established or even probably established. Since
qualified immunity is appropriate if reasonable officers could disagree on the
relevant issue, Sevigny v. Dicksey, 846 F.2d 953, 957 (4th Cir.1988), it surely
must be appropriate when reasonable jurists can do so.

B.
12

The question of clarity bears directly upon plaintiffs' contentions that Secretary
Powers is personally liable for the $140 million that she collected in
unconstitutional taxes from them during the years 1985-1988. They argue that
even before Davis was decided, the doctrine of intergovernmental tax immunity
as well as 4 U.S.C. Sec. 111 clearly established their right not to be taxed in a
discriminatory manner, and that a reasonable Secretary of Revenue would have
recognized that North Carolina's tax system was discriminatory.

13

We disagree. Secretary Powers was enforcing a long-standing statute that was

similar to enactments elsewhere. The most pertinent judicial decisions had
upheld comparable taxing schemes and the doctrine of intergovernmental tax
immunity was, at best, ambiguous. We decline to proclaim in hindsight after
the Davis decision that the unconstitutionality of differential tax exemptions
had been clear all along.

14

Before turning to the specific case law, we will examine briefly the general
legal landscape surrounding the tax exemptions at issue here. Nothing in that
terrain demonstrates that Powers was remiss in her duties or that she knowingly
violated plaintiffs' constitutional rights. To begin with, the tax exemption for
former state employees' pensions had been in effect and unchallenged for nearly
fifty years. Plaintiffs argue that federal retirees had been complaining of unfair
taxation since at least 1979, but they point to no legal action resulting
therefrom. In addition, nearly twenty other states had promulgated and were
enforcing similar tax exemptions for former state employees. In short, Secretary
Powers was administering a statute which had been continually enforced for
decades and which was far from unique.3 Nothing in these circumstances
would have indicated anything other than business as usual to a state officer
who had sworn to uphold the laws of her state.

15

Rarely will a state official who simply enforces a presumptively valid state
statute thereby lose her immunity from suit. "Legislative classifications ... are
presumed to be constitutional." New York State Club Ass'n v. City of New
York, 487 U.S. 1, 17, 108 S.Ct. 2225, 2236, 101 L.Ed.2d 1 (1988). Absent
extraordinary circumstances, which are not present here, liability will not attach
for executing the statutory duties one was appointed to perform. Lemon v.
Kurtzman, 411 U.S. 192, 207-09, 93 S.Ct. 1463, 1472-73, 36 L.Ed.2d 151
(1973). Government would come to a virtual standstill if executive officials
concluded that their safest course of action was to ignore the laws of the state
and to take no course of action for fear of liability. Reliance upon the
presumptive validity of state law may be "the paradigm" of objectively

reasonable conduct that the grant of immunity was designed to protect.

Landrum v. Moats, 576 F.2d 1320, 1327 n. 14 (8th Cir.1978). The usual
practice must therefore be that "[u]ntil judges say otherwise, state officers ...
have the power to carry forward the directives of the state legislature." Lemon,
411 U.S. at 208, 93 S.Ct. at 1473. Plaintiffs have not shown anything here that
would cause us to abandon this rule.
16

Turning next to the case law, we note that in determining whether the law is
clearly established, the vintage of the asserted right is of less guidance than the
specificity of the right. The right to due process, for example, might be
considered clearly established because of the Constitution's Due Process
Clause; however, "if the test of 'clearly established law' were to be applied at
this level of generality, it would bear no relationship to the 'objective legal
reasonableness' that is the touchstone of Harlow." Anderson v. Creighton, 483
U.S. 635, 639, 107 S.Ct. 3034, 3038, 97 L.Ed.2d 523 (1987). Rather, the
"contours of the right" must have been so conclusively drawn as to leave no
doubt that the challenged action was unconstitutional. Id. at 640, 107 S.Ct. at
3039. We do not, of course, interpret the term "clearly established" to mean that
government officials are always allowed one constitutional violation free of any
liability. Nevertheless, the greater the similarity of the existing case law to the
situation at hand, the greater its guidance to a reasonable state official. "[I]n the
light of pre-existing law the unlawfulness must be apparent." Id.

17

The district court here stripped Secretary Powers of all immunity because it
concluded that "Davis was inevitable." Yet the only rationale the court offered
for that opinion was that "the doctrinal underpinnings of Davis are longstanding principles." The court's observation that the doctrine of
intergovernmental tax immunity hails from the time of McCulloch v. Maryland,
17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), is of little practical use to a state
revenue secretary whose duty it is to administer the intricacies of a modern tax
code.

18

Nor have plaintiffs pointed to any court decision prior to Davis that struck
down tax exemptions like North Carolina's, despite the fact that numerous
states had enacted such provisions. In fact, the only decisions addressing those
laws had upheld them in the face of constitutional challenges. The case most
directly on point was, of course, the decision of the Michigan Court of Appeals
in Davis v. Michigan Dept. of Treasury, 160 Mich.App. 98, 408 N.W.2d 433
(1987), ruling that any difference in the tax treatment of state and federal
retirees was constitutionally justified by reasonable differences between those
two groups. A similar taxing scheme in Arkansas had survived a challenge on
equal protection grounds. See Streight v. Ragland, 280 Ark. 206, 655 S.W.2d

459 (1983). This precedent alone suffices to show that the holding of Davis had
not theretofore been clearly established. Even had the Michigan and Arkansas
courts struck down the statutes of those states, we would be hard pressed to
conclude, from the standpoint of our federal system, that a North Carolina
revenue secretary must sua sponte cease to enforce the duly enacted tax laws of
her state, without regard for the expressions of the legislature.
19

Lacking supportive precedent directly on point, plaintiffs emphasize a series of

Supreme Court cases that establish the so-called modern approach to
intergovernmental tax immunity. E.g., James v. Dravo Contracting Co., 302
U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155 (1937); United States v. City of Detroit,
355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424 (1958); United States v. County of
Fresno, 429 U.S. 452, 97 S.Ct. 699, 50 L.Ed.2d 683 (1977). Plaintiffs maintain
that the principles underlying intergovernmental tax immunity were so
straightforward and easily applicable that no further precedent was necessary to
lead a reasonable official to the conclusion that North Carolina's laws violated
the Constitution.

20

We do not regard these cases as clearly establishing that Secretary Powers'

actions were unconstitutional, however. As an initial matter, the modern line of
cases represents a shift in emphasis away from immunity from taxation and
toward limitation of such immunity. New York v. United States, 326 U.S. 572,
581, 66 S.Ct. 310, 314, 90 L.Ed. 326 (1946). Indeed, the vast majority of
plaintiffs' cited cases held that the challenged taxes were constitutional.

21

More specifically, as Justice Stevens' dissent in Davis makes clear, the rationale
behind the precedent might have suggested a different result in that case. In
United States v. County of Fresno, 429 U.S. 452, 462, 97 S.Ct. 699, 704, 50
L.Ed.2d 683 (1977), for example, the Court wrote that a tax would not violate
the doctrine of intergovernmental immunity "so long as the tax is imposed
equally on the other similarly situated constituents of the State." The Court had
promoted that rule as being "the best safeguard against excessive taxation."
South Carolina v. Baker, 485 U.S. 505, 526 n. 15, 108 S.Ct. 1355, 1360 n. 15,
99 L.Ed.2d 592 (1988). The rule's potency stems from the political check that
"is provided when a state tax falls on a significant group of state citizens who
can be counted upon to use their votes to keep the State from raising the tax
excessively, and thus placing an unfair burden on the Federal Government."
Washington v. United States, 460 U.S. 536, 545, 103 S.Ct. 1344, 1350, 75
L.Ed.2d 264 (1983).

22

Because the Michigan tax applied to 4.5 million state citizens, including 24,000
federal retirees, and exempted only 130,000 retired state employees, Justice

Stevens argued that an obvious political check on excessive taxation existed.

Any discrimination visited upon federal retirees was additionally placed upon
millions of other state citizens, so the tax burden was arguably "a matter of
indifference to the Federal Government [since] it can fairly be said that federal
employees are treated like other ordinary residents of the State." Davis, 489
U.S. at 823-24, 109 S.Ct. at 1512 (Stevens, J., dissenting). Although Justice
Stevens agreed that federal employees could not be singled out to shoulder a
heavier financial burden than other citizens, he asserted that "[t]he
intergovernmental immunity doctrine simply does not constitute a most favored
nation provision requiring the States to accord federal employees and federal
contractors the greatest tax benefits that they give any other group subject to
their jurisdiction." Id. at 823, 109 S.Ct. at 1512. Thus a state official who
examined North Carolina's tax system prior to Davis might easily have
concluded that it worked no unconstitutional discrimination. Not only were
federal retirees not treated adversely vis-a-vis the majority of retirees and other
citizens in North Carolina, but they actually were accorded a benefit denied to
those others.
23

We discuss the contentions in Justice Stevens' dissent not with any purpose of
arguing that Davis was wrongly decided, but simply to illustrate that persuasive
arguments could be and were fashioned on both sides of the issue, grounded in
the same precedent. That Davis was decided by a vote of 8-1 does not
determine that the law was clearly established prior to that decision. We do not
think it wise to set up a rule that turns on the number of appellate votes a given
argument acquires. Even a unanimous opinion may have resulted from a close
and controversial debate. That the Supreme Court chose to write about the issue
at all provides some degree of insight into the state of the law; presumably the
Court would not squander its limited resources on an issue that was clearly
settled.

24

Plaintiffs respond that even if the doctrine of intergovernmental tax immunity

was imprecise, nevertheless 4 U.S.C. Sec. 111 clearly should have indicated
that North Carolina's taxation was illegal under federal law. Section 111
authorizes states to tax "pay or compensation for personal service as an officer
or employee of the United States ... if the taxation does not discriminate against
the officer or employee because of the source of the pay or compensation."
Plaintiffs argue that this statute, although facially a mere authorization to tax,
additionally prohibits discriminatory taxation. Secretary Powers argues that
prior to Davis it was not clear whether Sec. 111 applied to retirement benefits
received by former employees or whether it was limited by its very language to
current employees.

25

26

We believe that Secretary Powers could reasonably have concluded that Sec.
111 did not prohibit North Carolina's taxation system. Certainly the Michigan
Court of Appeals reached a similar decision regarding the reach of Sec. 111.
See Davis, 408 N.W.2d 433, 435. Additionally, federal law often draws
distinctions between employees and retirees. E.g., Allied Chemical & Alkali
Workers of America, Local Union No. 1 v. Pittsburgh Plate Glass Co., 404 U.S.
157, 165-71, 92 S.Ct. 383, 390-93, 30 L.Ed.2d 341 (1971) ("employee" as used
in National Labor Relations Act does not include "retirees"); see also Ernzen v.
United States, 715 F.Supp. 1483, 1485 (S.D.Cal.1989) ("[n]owhere does the
[tax] code define 'retirees' as 'employees.' "); 26 U.S.C. Sec. 61(a)(1), (11)
(Internal Revenue Code distinguishing between "compensation for services"
and "pensions").
In short, how the intergovernmental tax immunity doctrine and 4 U.S.C. Sec.
111 applied to North Carolina's revenue statutes was anything but clearly
established prior to Davis. The district court erred, therefore, in subjecting a
state revenue official to personal liability because she failed to predict how the
Supreme Court would rule. Because Secretary Powers acted reasonably in
collecting taxes pursuant to North Carolina law, she is entitled to immunity
from liability in damages for so doing.

III.
27

The Class A plaintiffs also argue that even if Secretary Powers is entitled to
immunity for her pre-Davis actions, she is yet liable for continuing to collect
fiscal year 1988 taxes in 1989 after the Supreme Court decided Davis. They
also complain that Powers did not accord them an adequate post-deprivation
remedy for the unconstitutional taxation because "without prior notice and
contrary to established official practice and advice, [she applied] a 30-day
refund demand requirement" as a method of preventing refunds.

28

Plaintiffs' arguments, however, omit certain important considerations. First,

North Carolina law distinguishes between invalid or unauthorized taxes and
incorrectly computed taxes. Coca-Cola Co. v. Coble, 293 N.C. 565, 238 S.E.2d
780, 783 (1977); see N.C.Gen.Stat. Secs. 105-266.1, 105-267 (1989). The
thirty-day period for requesting refunds of unauthorized taxes is set by statute,
not by the whims of the Secretary of Revenue. See N.C.Gen.Stat. Sec. 105-267
(1989). Payment of the tax followed by a request for a refund is the exclusive
means for remedying an unconstitutional tax in North Carolina. Coca-Cola, 238
S.E.2d at 783. Furthermore, the statutory requirement that taxpayers demand
refunds of invalid taxes within thirty days of payment has been North Carolina
law for approximately fifty years, which must have provided plaintiffs some

minimum of notice.
29

Additionally, following the Davis decision, which was handed down on March
28, 1989, Secretary Powers sought an opinion from the North Carolina
Attorney General regarding the effect of Davis on the state income tax system
and the proper procedure for refunding unconstitutional taxes. The Attorney
General's response, dated April 10, advised that under Coca-Cola and the
appropriate statutes, "the Secretary of Revenue is not authorized to refund any
taxes imposed illegally ... unless they were paid 'involuntarily,' as indicated by
a demand for refund made within 30 days of payment." (emphasis added). On
April 13, Secretary Powers issued a statement to the press publicizing the
procedures for taxpayers to follow to obtain refunds, as well as the thirty-day
request period. According to Powers, over $9 million has since been refunded
to taxpayers under state law, which is as a general matter a preferable vehicle
for pursuing refunds of state taxes than a Sec. 1983 suit.

30

Plaintiffs' argument that Powers "changed" the refund procedures relies

substantially upon statements in income tax bulletins regarding the statute of
limitations. We find this reliance misplaced because the bulletins clearly state
in their preface that they "do not cover all phases of the law." In fact, only the
refund procedures under Gen.Stat. Sec. 105-266 for routine overpayments due
to miscalculation are discussed; the bulletins do not mention Gen.Stat. Sec.
105-267, which applies to refunds of unconstitutional taxes.

31

Plaintiffs would have had Powers act beyond her statutory authority and issue
refunds spontaneously. It cannot be that a state official who enforces a valid
statute and who has in good faith sought legal advice from a state attorney
general will nevertheless be found liable in damages for following that statute
and that advice. See Lemon v. Kurtzman, 411 U.S. at 208-09, 93 S.Ct. at 1473;
Lucero v. Hart, 915 F.2d 1367, 1371 (9th Cir.1990) (reliance on counsel is
evidence of good faith). It would be difficult to convince qualified citizens to
enter public service if they faced the possibility of paying damages because
they followed the law or did not include in a general informational pamphlet all
the statutory minutiae of a complex tax code. Secretary Powers is entitled to
immunity for her actions with respect to collecting 1988 taxes from the Class A
plaintiffs.

IV.
32

The Class B plaintiffs are active duty national military personnel and reservists.
They complain that they were discriminated against as federal employees in
violation of the intergovernmental tax immunity doctrine because members of

the North Carolina National Guard received an annual tax exemption of $1500
while they did not receive any exemption. See N.C.Gen.Stat. Sec. 105-134.6(b)
(4) (1989).4 They additionally protest that Secretary Powers continued until
July 1990 to collect their taxes despite the decision in Davis and has denied all
their refund requests.
33

Powers responds that the $1500 exemption for the National Guard was not
unconstitutional. She maintains that the plaintiffs' argument is based on the
alleged similarity between their jobs and a National Guardsman's job and that in
reality those jobs are sufficiently dissimilar to justify differential tax treatment.
Her second argument is that any discriminatory treatment is not
unconstitutional because it is between two types of federal employees. Section
111, which "is coextensive with the prohibition against discriminatory taxes
embodied in the modern constitutional doctrine of intergovernmental tax
immunity," Davis, 489 U.S. at 813, 109 S.Ct. at 1506, prohibits only
discrimination "because of the source of the pay or compensation." In Powers'
view, since the federal government pays 99% of the compensation for personal
service disbursed to North Carolina National Guardsmen, the Guardsmen must
be considered to be federal employees for purposes of intergovernmental tax
immunity. At a minimum, she claims, the law is not so clearly established that
she is personally liable for collecting plaintiffs' taxes.

34

We need not actually rule on the constitutionality of the $1500 exemption to

decide the issue before us. We have already held that prior to Davis, the
doctrine of intergovernmental tax immunity would not have clearly prohibited
such an exemption. Nor was it obvious following Davis that an exemption for
the National Guard would be unconstitutional. Certainly if the Class B
plaintiffs were not similarly situated to the National Guardsmen, then no
violation occurred, but the record is barren of facts on that point. Even
assuming that the two groups are similar, however, a reasonable state official
could have concluded that the exemption was constitutional. The record shows
that except when National Guardsmen are ordered into the service of the state
in order to suppress riots or to provide disaster relief, they are compensated by
the federal government pursuant to various federal statutes and regulations.
Their paychecks are drawn on the United States Treasury. In 1989, state funds
constituted only approximately one percent of the personal services
compensation paid to National Guardsmen in North Carolina. The
intergovernmental tax immunity doctrine prohibits discriminatory tax treatment
of the federal government and those with whom it deals. Since the federal
government pays both the Class B plaintiffs and the National Guardsmen, it is
at least arguable that an exemption for one of those groups creates no
constitutional violation. On that basis we hold, without deciding the

constitutional merits of the claim, that Secretary Powers is entitled to immunity

from the Class B plaintiffs' suit.
V.
35

The ills that would result from allowing suits for damages against state officials
who simply perform their official duties are evident. Suits such as these have
the potential to threaten the foundations of our most basic governmental
functions--in this case, the collection of the revenue. Because the plaintiffs'
asserted rights were not clearly established and because Secretary Powers acted
reasonably in enforcing presumptively valid state statutes, we hold that she is
entitled to immunity from suit. The judgment of the district court is therefore

36

REVERSED.

Powers has since resigned, effective April 30, 1990, and is thus being sued now
only in her individual capacity

A few months after the Davis decision was announced, the North Carolina
General Assembly amended its revenue statutes to treat federal and state
retirees equally effective January 1, 1989

We do not, of course, imply that enforcement of a statute unique to a single

state would result on that account in a loss of immunity. Such a rule would
unduly penalize innovation in state government

The North Carolina General Assembly repealed the $1500 exemption effective
January 1, 1990